The Supreme Court heard the case today of the Rabbi Who Complained Too Much.
Northwest Airlines cancelled his frequent flyer account and he sued in State Court, arguing essentially that even though the frequent flyer program’s terms and conditions say they can basically do as they wish, honoring their program commitments or not, for any reason or no reason, that the state’s contract law includes an ‘implied covenant of good faith and fair dealing’ that doesn’t let the carrier behave that way.
Delta, which now owns Northwest, argues that the claim is pre-empted by the federal Airline Deregulation Act. When the federal government deregulated the airlines, it declared that states couldn’t step into the breach by regulating airline routes, schedules, or pricing.
The irony is, that no matter which way the Court rules, the case has far greater implications for the general traveler than it does for members of frequent flyer programs.
Why This Case Matters for Travelers
They can do that, they make their sole determinations as to which aircraft to fly and which to bump when one goes mechanical or is otherwise not available. They get to prioritize whomever they wish.
If the Supreme Court says that state contract principles aren’t effectively adding a new requirement onto airline agreements, but rather interpreting those contracts, then consumers have some measure of protection — or at least access to courts — if they believe they have been treated unfairly by the airlines.
If the Supreme Court rules that using such a principle is effectively a state-level add-on, and thus barred by the federal Airline Deregulation Act, there’s very little recourse when airlines enforce their one-sided contracts of carriers — effectively adhesion contracts that don’t represent a meeting of the minds of the parties (because consumers do not read or understand them when purchasing a ticket, and indeed airline executives themselves are often unfamiliar with the nuances of their contents).
The Case Won’t Ultimately Matter for Frequent Flyers: They’ll Be Back in Court
Rabbi Ginsberg had his flight benefits and airline redemptions taken away when his account was closed by Northwest. That’s about as straight up the middle a question for the Airline Deregulation Act as possible. But it doesn’t really represent how frequent flyer programs are run today.
When the Supreme Court last visited frequent flyer programs in American Airlines vs. Wolens, and ruled that regulating them would be tantamount to route, schedule, or pricing regulation, programs were very different than they are today. And those changes will ultimately mean that frequent flyers may be back in court to argue that the programs are no longer covered by the Airline Deregulation Act’s pre-emption of state law remedies.
- Frequent Flyer Programs Have Become All Purpose Marketing Companies. They aren’t just about flying anymore, and ultimately will be entirely separable from the Airline Deregulation Act.
- Majority of Miles Not Earned By Flying. Banks award more miles than airlines do to passengers for their flying. You can earn miles from rental cars, hotel stays, mortgages, online shopping, cell phone contracts, really just about any non-light activity you undertake — even paying taxes.
- An Airline Can Still Control its Flying Operation Without Taking Away a Member’s Miles. Miles can be redeemed for non-flight activity, for flights on partner airlines, or for other people besides the member. So stopping a frequent flyerprogram from banning a member doesn’t inherently control its airline operations.
- When an Airline Owns an Ancillary Business, that Business Isn’t Exempt from State Law. United used to run Westin hotels, Delta owns an oil refinery, there are plenty of businesses including commodities trading that the airlines are in. Their non-flying businesses aren’t exempt from state laws. Loyalty programs will eventually fall into the same bucket, even if this current case doesn’t really raise those issues as central.
- Mileage Programs Can Be Completely Separate Companies . While Delta may operate the Skymiles program, there’s nothing inherent in a frequent flyer loyalty scheme that says this must be so. Air Canada’s Aeroplan is a separately traded entity. That structure has become more common around the world. United’s program is a separate but wholly-owned company (that many expected some years ago would go public). These are separate businesses that began as part of airlines but that have developed independently and in many cases are much more profitable than the airline to which they’re affiliated.
Today’s case matters for consumers, but it matters for passengers generally a whole lot more than it does for frequent flyers — who will get a future day at the Supreme Court if Rabbi Ginsberg doesn’t prevail today.
The Supreme Court did have a brief discussion about the disconnect of frequent flyer miles from the operation of an airline but the claim at issue is over the loss of flights and flight benefits, and this case is highly unlikely to be decided on the basis of the changing nature of loyalty programs. A future case actually may be!